November 2009

Good News: Home Buyer Tax Credit Extended

If you haven’t already heard, Congress has extended and expanded the home buyer tax credit. This means extra time for those of you who weren’t able to close by the original December 1, 2009 deadline, and an added credit if you’re a current homeowner looking to purchase.

Why is this such good news? Because there has never been a better time to purchase a home…but be careful because Congress has indicated this will be the last extension of this credit.

For First-Time Buyers:

First off, who exactly qualifies as a “first-time buyer”? Well, it’s pretty simple: anyone who has never owned a home OR has not owned a home for 3 years prior to your purchase.

The amount of the credit is still 10% of the purchase price up to a maximum of $8,000. The deadline has been extended to April 30, 2009, but if a written contract to purchase is in effect by April 30, 2010 the purchaser will have until July 1, 2010 to close.

People with higher incomes can now qualify for the credit, but this only applies to purchases occurring after November 6, 2009. The income limits for sales occurring on or after January 1, 2009 and on or before November 6, 2009 are $75,000 for single taxpayers and $150,000 for married couples filing jointly.

For Current Homeowners:

Who qualifies for this credit? Buyers who have owned and lived in their previous home for five consecutive years out of the last eight years. The amount of the credit is 10% of the purchase price up to a maximum of $6500.

However, if you make more than $125,000 as a single filer or $225,000 as a married filer you will not be eligible for this credit.

Frequently Asked Questions:

1. What types of home will qualify? Any home that will be used as your primary residence, as long as the home is less than or equal to $800,000. But also note that you cannot purchase a home from any family members.
2. How do you claim the tax credit? You have to claim the tax credit on your federal income tax return. Remember this is not a deduction so you get the entire amount of the credit. Also, you do not get the credit at closing. No other applications are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for either tax credit by talking with a professional before moving forward.
3. Do you have to repay the tax credit? Not as long as you live in the home for at least 3 years. If you no longer use the property as your principal residence before that time, you are required to repay the credit.

Is a Condo the Choice for You?

While you may have already found the perfect condo for you and your family, you still want to explorer the possibilities of this purchase before you sign on the dotted line. Many people planning to purchase a new home forget to do their homework and either end up with less home for their money or a home that doesn’t meet all of their needs. Here are some helpful tips to insure that you get what you are looking for:

Define Your Needs

One of the most overlooked aspects of purchasing a condo is balancing your family’s needs against the potential condo features you are interested in. You should write down your family’s needs and the features you are looking for, including the number of bedrooms, number of bathrooms, garage size, kitchen size, etc. Knowing what you want (and need) will save you tons of time and energy.

Consider the Location

Just like the age old real estate saying “location location location”, knowing the area you plan to live in is just as important as knowing the financial and structural facts of the home. What are the average home values in the neighborhood? How close are the schools local shopping? What are the morning traffic conditions for your commute to work? What is the proximity to friends and family?

Learn About the Condo

Learn all you can about each condo you view and make detailed notes. One of the questions you will want to ask is the home’s current condition. Although a potential condo may have an external appearance of being structurally sound, in some cases that could be far from the truth. Ask for an inspection. Any reputable real estate agent won’t refuse a request for a home inspection, and as a matter of fact, if you plan on securing a home loan, an inspection will undoubtedly be required.

Will the condo require any repairs before you move in? If so, estimate the time and cost of the repairs. Knowing the facts will give you leverage when it comes time to negotiate.

Protect Yourself at All Times

Ask a lot of questions and ask to see all related documents. If the seller says he has had a new heating system installed, then ask for proof! A home that has been carefully maintained will have documents to support it. When it is time to finalize the purchase of your new condo, make sure you understand everything before you sign. If you don’t understand, don’t sign until you do!

Are You Eligible for a VA Mortgage?

If you or your spouse is a veteran, getting a VA mortgage is a great option to know more about, and it guarantees the lender 25% of the home loan (up to $104,250 of a maximum loan of $417,000) if you default. This guarantee makes it easier for you to find attractive financing with no down payment, longer repayment plans, and no prepayment penalty based on qualifying.

How They Got Started

The VA Mortgage started in 1944 with the GI Bill of Rights, signed into law by President Franklin D. Roosevelt, which provided veterans a federally guaranteed home with no down payment. It was designed to provide housing assistance for veterans and their families, and the dream of owning a home became a reality for millions of veterans returning from the war. Historically the GI Bill has contributed to the growth of the nation’s economy and the welfare of veterans more than any other program.

More than 25.5 million veterans and service personnel are eligible for VA financing. Eligibility changed after September 7, 1980 where a two-year service requirement was put into place for veterans enlisted, or if the veteran was an officer and began service after October 16, 1981. There is a six-year requirement for National guards and reservists with certain rules and criteria concerning eligibility of surviving spouses.

How They Work

VA Mortgages are home loans, made by private lenders to eligible veterans for the purchase of a home for their own personal occupancy. The home does have to pass certain inspections to qualify. The value of the home or the purchase price – whichever is less – plus the funding fees may be borrowed. Veterans must still qualify with debt to income ratios; it is not a guaranteed approval just because you are a Veteran.

Funding fees average 2.15%-3% depending on eligibility and veterans. Veterans receiving VA compensation for service disabilities, veterans that would be eligible to receive service connected pay if not for retirement benefits, and surviving spouses of veterans who died in service are exempt from the funding fee.

Closing costs can average 3%-5% but can be included in negotiations with the seller to pay, assuming the house appraises for the increased price. Additional costs associated with your VA mortgage would be appraisal costs, recording fees, credit report, prepaid taxes, and insurance and title examination in addition to the funding fees.

Experience Homeownership with an FHA Loan

Purchasing a home loan is not always an easy feat, and people with lower incomes, including first-time homebuyers, often have a hard time getting approved for a home loan. So what are the options? For individuals who need a little extra help, an FHA loan might be the answer you are looking for.

Where do I start?

The first step is finding a lending institution that has an FHA program. Once you apply for an FHA loan, the Federal Housing Administration will examine your application for the following items: your income to debt ratio, how (and if) you paid previous debts, overall income, number of family members, etc.

Bad credit applications will generally be approved if it has been two years since bankruptcy and you’ve made debt payments on time for at least 12 months. If they decide that you meet the qualifications and are an acceptable candidate, they will approve the loan.

What are the Benefits?

Besides increasing loan acceptance by private lender, here are some of the more obvious benefits:

• Lower down payment
• Lower closing costs
• Lower interest rates
• Helps for those with little or no credit
• Greater leeway for those with a bad credit history

What are the disadvantages?

The loan process can be very tedious. It may take a while to figure out which type of loan to apply for and meet all the qualifications before getting approved. There are stringent guidelines for qualifying the property for an FHA loan, and the specific specs and qualifications will vary per state and area. So make sure you are working with someone who is an expert on this type of loan program.

What Should a Good Loan Officer Do For You?

So, you want to purchase a home and need to decide on a loan officer to help you through the loan process, but you’re not quite sure what to expect. Well, overall a good loan officer should act as your liaison during the entire loan search, application, and approval process.

Typically they will conduct and organize the following:

• Conduct a thorough evaluation of your financial solvency, including a detailed analysis of their credit history and verifying all stated income and employment.
• Investigate the current mortgage loan market to find the type of mortgage that will meet your needs.
• Complete the application for a mortgage loan pre-approval.
• Compile your required documentation, including bank statements, employment history, current pay stubs, and income tax return copies from the last few years.
• Complete a lender application form.
• Explain all of the legal disclosures to you.
• Submit all necessary documentation and material to the lending institution.

Basically, your loan officer will act as your representative when dealing with the financial lending institution. They will be your primary resource for understanding the mortgage loan contract language, lender and escrow company requests and requirements, and the myriad of other questions or concerns that may come up during the loan approval process.

Your loan officer should also explain different loan options to you and keep you informed on the current rates, which vary between lending institutions. The rate will be calculated based on your personal financial circumstances, the amount of the loan requested, the value of the home in question, and a few other variables, including your credit score.

A good loan officer will also have the most up-to-date information on all lending institutions, and are there to negotiate the absolute best rate on your loan as possible.

The loan approval process is often an intimidating and overwhelming experience. But establishing a good relationship with your loan officer can help make the process more straightforward and much less stressful.

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